The Piracy Playlist: Can the Music Industry Fight Counterfeit CDs?

Music piracy has existed for centuries, but it wasn’t until digital media came along that it really took off. Napster. Fake CDs. Pirate Bay. And even though the momentum in the industry appears to be headed away from buying physical media that hold your music in favor of digital downloads and streaming, the fact remains that an enormous number of fans still want to buy, own and listen to their favorite artists on CDs. Indeed, CD sales still account for about 40% of a $15 billion global music industry.

But millions of the CDs those audiophiles have been buying online aren’t any more legitimate than a $20 Rolex, and music fans are filling the pockets of pirates instead supporting the music industry, artists and record labels. It’s gotten bad enough that recently, the American Association of Independent Music warned its indie label members of a rash of Chinese pirates selling CDs on Amazon.

University of Pennsylvania Law School professor Polk Wagner and Eric Priest from the University of Oregon joined the Knowledge@Wharton Show on Sirius XM channel 111 to discuss the latest iterations of the music piracy problem, and what the industry can do.

Knowledge@Wharton: Even though a majority of this problem seemingly is coming from overseas, it’s an issue that the U.S. has to address, is it not?

Eric Priest: Absolutely. A lot of people think that we’ve now moved to a completely online download or an online streaming music business. But in fact, in 2015, CD sales accounted for almost 40% of the recording industry revenue in the United States. So this is still a huge business. It’s still a $2 billion business. What we’re talking about is a prevalence of online counterfeit CD sales. That not only hurts the music industry, but it also hurts consumers, of course, because these people are buying CDs online because often they think it’s better quality than what you can get through a download. I know I certainly buy CDs online still because I’m a bit of an audiophile, and I prefer the quality of CDs.

But also, it affects the online retailers like Amazon or eBay and others, where these pirated CDs appear, because consumers really believe that they’re going to these sources because they are, first, getting legitimate products that are higher quality, but second, that they’re also supporting artists. This is actually something that really matters in the U.S.

Knowledge@Wharton: Is a majority of this problem coming from outside of the U.S. or - outside of Amazon and other e-commerce sites being part of the selling process - is there an element to this still happening here in the United States?

Polk Wagner: Well, there probably is. I think what you’ve certainly read about and what was specifically discussed inside the industry these days is the so-called “Chinese piracy.” And I think that that probably has a significant amount of truth to it, in part because the Chinese economy has become extremely efficient at doing this type of thing: taking products and making high-quality, but not quite the same, imitations of those and selling them. Their distribution networks are always getting better; the transportation networks are getting better; places like Amazon are getting better at making it seamless for consumers to get these sorts of products. And because those efficiencies have been worked through over the last several years, the ease of selling counterfeit goods on places like Amazon and eBay is going to only increase.

I’m sure there are still counterfeit operations going on in the United States. It is still quite easy to create a counterfeit CD. These are digital copies - basically, the same thing as the original. Now doing it really well - having the booklet and the CD jewel case and those sorts of things be identical to what is sold in the stores - can be complex and takes skill.

But in terms of the basic piracy, this is not anything that’s difficult.